Maximizing RRSP vs Minimizing Taxes

Contrary to popular belief, maximizing your RRSP may not always be synonymous with minimizing your taxes. Sure, your contributions will bring down your taxable income in the short run and you probably will get a refund soon, once you file your tax return. But after all is said and done, you may also end up paying more tax.

The good news is that, as far as RRSPs are concerned, fairly simple fiscal planning can go a long way. The key is to compare your present (or contribution) tax level with your probable withdrawal tax level.

Because taxes increase with your income level, ideally, you want to contribute when your income is high and withdraw when it is low. In the same fashion, you want to avoid unnecessary contributions when your income is abnormally lower and limit withdrawals in periods where your income is higher.  

Ideas to Deal with Rising Mortgage Rates

On September 6^th, the Bank of Canada implemented its second rate hike of the summer. We must assume it’s only the beginning as the Canadian economy has been doing quite well. Essentially, rising interest rates is the main option for the Bank of Canada to keep inflation under control in booming economic conditions.

As a result, Canadians can expect borrowing costs to get higher. In that context, the principal preoccupation of many house owners is having to pay more for their mortgage.  

So, what can we, simple mortals, can do about it?
  

Stay calm as you probably have time to adjust

Stay calm! There’s nothing critical yet. First, significant hikes won’t happen overnight and will be gradual. Second, effect may not be that immediate so you still have time to prepare for adjustments. Online mortgage calculators can allow you to anticipate eventual increase of your payments.

For very popular fixed-rate mortgages, payments won’t be affected till renewal. Many variable-rate mortgages involve fixed payments also only affected at renewal. You’ll end up paying more interest and your balance will accordingly be a little higher.

Squirrel Your Way Out of the Rat Race

Tired of being trapped in the never ending rat race? Of living or surviving we should rather say, till your next paycheck, burning through money almost as you touch it, always wanting more and seemingly getting less?

A solution exists: simply act more like a squirrel!

Squirrels are expert savers. They work very hard to find their favourite delicacy: precious nuts. So after struggling to discover some, they stash most of it away. They know provisions will be quite useful when harder times come by.

The squirrel in you knows the value of money and can avoid wasting it. He knows how hard you worked and how much precious time you spent to earn it. He’s inclined to save in anticipation of rainier days and convinced stashing some away will someday get you free. Financially free but also liberated to spend as you wish the rarest resource of our so-called advanced era: your invaluable time.

Saving more, spending less and by the same token, struggling less can be a wonderful liberating idea.

So get some inspiration from our squirrel friend and escape the excruciating rat race. Besides, it may never be possible to get ahead of it and even less to win it anyway.

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Wake Up 12-Minute Earlier to Compensate Lack of Sleep

If you’re like me, sometimes, because of a lack of sleep, you feel excruciatingly tired when your alarm wakes you up. You would only like to comfortably stay in bed. Especially if your job isn’t that motivating. Some of these mornings, everything seems difficult, you’re stuck in neutral and can’t get going. You can even end up dragging that awful feeling all day.   

A few years back, my family doctor had a great suggestion to solve this problem: to wake up earlier! This may seem like a contradiction but it really works! At least for me…

Having a couple more minutes to spare, you can take time to relax and diminish the stress of a hectic morning routine. Just be careful not to become too relaxed and run late...

This course of action also has a complimentary beneficial effect: a tad more tired of night, you should get better deeper sleep.

Three four days and good nights into the process, you’ll feel rested, relaxed and ready to conquer the world.

So, next time a shortage of sleep leaves you repetitively stuck in bed, think of the opposite and set your alarm 12-Minute earlier to break up the vicious circle.

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Program Yourself into More Happiness

I recently recalled some simple yet powerful tips from a book I read a while back.

Among other things, it mentioned taking some time each night to remember good deeds of your day; to replay in your mind good feelings and happy moments. The main purpose of this habit is to feed your subconscious happy images and good sensations.

For instance, I like to think about great golf shots or simply, the genuine smile I got from a complete stranger after I opened the door to her.

Anyone can tap into the power of the subconscious. Without consciously thinking about it, you can breathe and heal your small wounds. These are examples of the incredible possibilities of the subconscious.

The subconscious can do much more as it can also bring you happiness. Contrary to its logical brother, the conscious, the subconscious is not analytic and rational at all. The subconscious is also pretty bad with words and instructions; he prefers images and feelings, they talk more to him. But be careful what you present him because he won’t think before realizing it.

Source : Le Pouvoir de la pensée, Milton Cameron (1999), Quebecor.

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Reduce your Telecom Bill Just by Asking

The other day, my uncle Jim was furious after receiving a juicy internet bill. He initially thought he got charged too much. He immediately called his provider to complaint about the “overcharge”.

Very patiently, the customer service clerk made some verification and subsequently told him he had exceeded his transfer capacity for the last two months. Jim wasn’t happy with that yet very sensible answer and still went on grumbling.

A tiny bit later, by what seemed like insane magic, the extra charge had been reversed. On top of it, they even gave him a free upgrade so he would not bust his monthly plan anymore. What!?!

The next day, still a little angry yet proud about it, he called me. He still was worried his Wi-Fi router had been hacked and doubted the company’s assessment. I checked the logs and immediately discovered he had done it on his own. It clearly was his fault as he started to read his favorite newspaper online every day; all those presentations full of nice images and interactive videos quickly add up and could explain his sudden heavy internet usage. 

We laughed about all the fuss he had made and the fact he still got an upgrade just for calling and being a little persistent.

With my uncle’s happy fortune fresh in mind, the following week, I decided to also call my telecom provider to ask for a rebate. After just a few minutes, our monthly telecom bill was nicely reduced. Maybe not as substantially as Jim’s…still very easy money that remains in our pockets. Should have asked sooner and took note to do more often!   

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Easy Vacation Saving Tips

This week, booking our summer vacations reminded me of some easy saving tips.

Comparing seems to be our common theme. It sure can be profitable for you also!

1- Book two separate one-way flights instead of a roundtrip one

We’ve been doing this for a while. We look up flights using roundtrip information but book it separately or at least, compare it to the roundtrip fares.

We usually save 40-50$ per vacationer. Airport fees are quite expensive up here; that may be why we save so much when we book it the other way.

2- Book directly with the hotel

Again, we use specialized sites to look for our preferable hotel but book directly on the hotel’s website or sometimes, even call the hotel on the phone.

That way, it’s often easier to get access to additional discounts or to make special requests tailored to your needs.

Black Friday Math

I couldn’t resist summiting you this basic math problem on crazy Black Friday:

Offering an insane sale, a store is giving you an additional 50% rebate on an item already marked 40% down. What total discount percentage are you actually getting?

Some may promptly answer 90%...

…the correct result is 70%. 

Carefully Choose When to File Each Income Tax Return

Refunds Early, Payments Later

For each income tax return of your family, choose the most appropriate time to send it.

Thus, if a refund is expected: you should produce the corresponding income tax return as soon as possible. If you anticipate a payment: still prepare your tax return but only send it in a couple days before the deadline. Make sure to avoid late penalties.

All your family’s tax returns don’t have to be filed at the same time. Depending on your situation, maybe Mom’s can be sent in early to get her refund and Dad’s later to make his payment.

Pay Off Your Credit Card Balance Every Month

NEVER Carry a Credit Card Balance

Even though some people think it could help your credit rating, according to my view, carrying a credit card balance is NEVER a good idea.

In fact, if you use a credit card, you should adopt this three-part Basic Personal Finance Rule:

Lower Your Credit Card Limit if you’re Not Disciplined Enough

Opt for a Lower Limit

If you’re undisciplined, in addition to eliminating the majority of your credit cards; lower the limit of your remaining credit cards as much as possible.

You will thus avoid temptation more easily.

For Emergencies Only

At worse, only one card with a 500$ limit should be sufficient. 

Paying Some Loans Early May Not Always Be A Good Idea

Some Contracts Won’t Allow You to Save Interest

As a basic rule, getting rid of debts is a pretty good thing. But be careful, it’s not always true.

In fact, some type of loans won’t allow you to save on interests even if you pay up early. It’s often the case with car loans or leases. 

For these loans, interest charges are calculated as part of the original contract and cannot be altered.

Verify The Contract

The only way to actually know is to read the fine prints of the contract. So check your contract before getting rid of this type of debts.

Before You Can Improve, You Must Be Able to Measure Your Progress

Before implementing changes to fix problems and improve, the first step should be to adequately evaluate your value and measure your performance.

Therefore, you must begin by putting in place a system and tools to process all the necessary data. This database will help you assess the situation and observe improvements as they arise.

If already existing measuring tools are not adequate, a certain data gathering period must be planned to ensure that your data analysis tools are valid to monitor your evolution.

Apply Medical Expenses For The Whole Family On The Same Tax Return

Because your medical expenses deductions are reduced according to your income (3% of your income), rather than using them separately, it is permitted and advantageous to claim medical expenses on the same federal tax return for the entire family.

You may simply not reach your income reduction limit if you use these deductions on separate returns.

You can deduct medical expenses made for yourself, your spouse or your children if they were paid by you or your spouse.

Example

Let’s suppose both Mom and Dad have a $50 000 taxable income and that, medical expenses are $1000 for Mom, $800 for Dad and $400 for Baby.

Claimed separately, Mom (with Baby’s expenses included) would get no deduction
($1000+$400-$50000x3% = $1400-$1500 = -$100 < $0).
No deduction for Dad either
($800-$50000x3% = $800-$1500 = -$700 < $0)

But if Mom claimed all the family’s medical expenses on her return, she would deduct 700$.
($1000+$400+$800-$50000x3% = $2200-$1500 = $700)